Local banks should cap FY2020 dividends, offer shareholders alternatives to conserve capital: MAS

SINGAPORE: The Monetary Authority of Singapore (MAS) has advised local banks to cap their dividends for FY2020, calling it a "pre-emptive" move to bolster banks' resilience and ability to support lending under the current economic downturn.

In a media release on Wednesday (Jul 29), MAS said that the move was to encourage banks to "conserve and carefully manage their capital, by exercising restraint in discretionary expenditure and management compensation".

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The central bank in its release called on locally-incorporated banks headquartered in Singapore to cap their total dividends per share (DPS) for FY2020 at 60 per cent of FY2019’s DPS, which it said balances the objective of capital conservation with the interests of shareholders.

Banks are also advised to offer shareholders the option of receiving dividends in scrip in lieu of cash.

"While the local banks’ capital positions are strong, the dividend restrictions are a pre-emptive measure to bolster their resilience and capacity to support lending to businesses and individuals through an uncertain period ahead for our economy," said MAS.

According to stress tests by MAS, local banks have remained resilient amid the COVID-19 crisis. However, as the global economy has not shown signs of recovery and the situation remains uncertain, MAS said it would be prudent for local banks to put aside a "greater portion of earnings" during this period.

This would in turn bolster local banks’ ability to continue to support the credit needs of businesses and consumers, as well as absorb economic shocks in the event of a more adverse scenario.

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“We are fortunate that banks in Singapore entered the COVID-19 pandemic with strong capital positions. All the same, MAS wants to ensure the banks’ capital buffers remain ample in the face of significant uncertainties ahead, so that they can sustain lending to the economy," said Ravi Menon, managing director of MAS.

"We have carefully calibrated the restriction on dividends, taking into account the needs of investors who may rely on this income.”

Earlier in July, MAS said that despite growth rates being set to pick up in the second half of 2020, Singapore’s economic situation “remains dire” and its recovery will be a “slow and uneven” one.

The central bank's net profit in its last financial year fell 44.8 per cent, after investment income took a hit from sharp declines in the global markets.

In April, MAS encouraged banks in Singapore to ensure that sustained lending took priority over discretionary distributions.